UPDATE 5-Lululemon founder turns on board, votes against new chairman

(Adds vote results, details of situation)

By Allison Martell and Euan Rocha

TORONTO, June 11 Lululemon Athletica Inc's
founder and biggest shareholder, Chip Wilson, lashed
out at the yogawear retailer's board on Wednesday, saying the
company's new chairman and another director are too focused on
short-term growth and that he had voted against them in board
elections.

Just hours ahead of the company's annual meeting in
Vancouver, Wilson issued a press release praising Lululemon's
new management team, but saying the board is "heavily weighted
towards short-term results at the expense of product, culture
and brand and longer-term corporate goals."

Wilson, who remains on the board and owns a 27 percent stake
in the company, said he had voted not to elect Lululemon's new
chairman, Michael Casey, or director RoAnn Costin.

Spots on Lululemon's board are awarded to nominees who
receive the most votes. With no alternative candidates to Casey
or Costin, there was no way for Wilson's vote to change the
outcome of the meeting. Lululemon said all board nominees had
been elected, but did not immediately release vote counts.

The company, which is pursuing international expansion in
the face of growing competition, said in a statement that its
board and management are committed to shareholder value.

"Contrary to Mr. Wilson's assertions, Lululemon's board
members are aligned with the company's core values and possess
the necessary expertise to successfully lead Lululemon forward,"
the statement said.

Vancouver-based Lululemon has been struggling in the
aftermath of an embarrassing recall of see-through yoga pants
announced in March 2013. Once a market darling thanks to its
rapid sales growth, it is expected to report little or no gains
in same-store sales when it releases financial results on
Thursday morning.

Lululemon's stock, which has fallen about 50 percent in the
past 12 months, is now one of the most heavily shorted among
companies reporting earnings in North America this week.

Lululemon said in December that Wilson had decided to step
down as chairman before the annual meeting, and that Casey would
take his place.

A source familiar with boardroom discussions at Lululemon
said differences at the board level have been simmering for
months, but directors only became aware that Wilson was voting
his shares against the two directors on Tuesday.

Wilson's choice for a new chairman was not immediately
clear.

"I think the guy's upset that he got sent to the back of the
bus and this is his opportunity to lash out a bit," said Sterne
Agee analyst Sam Poser.

A source familiar with the matter said, however, that
Wednesday's move was not a knee-jerk reaction on Wilson's part
and that he has a series of options lined up.

The source said Wilson chose this route to try to spur the
board to act without a full blown proxy battle. He added that
although Wilson has yet to finalize his next step, there are
more moves to come.

QUALITY CONTROL

In his press release, Wilson said Lululemon asked him last
year to return from his home in Australia to help deal with
quality problems, and that he had overseen Lululemon's recent
management shakeup.

Late in 2013, Chief Executive Laurent Potdevin was recruited
to revive the company's fortunes. His appointment, and Wilson's
resignation as chairman, came after comments made by Wilson
deepened a public relations debacle Lululemon faced over the
sheer fabric used in some of its yoga pants.

Asked in a November television interview about problems with
the fabric, Wilson said it was not holding up because some
customers' thighs rubbed together, adding that "some women's
bodies just actually don't work" for Lulu's clothing.

The comments sparked an uproar, in part because of the
perception that Wilson was blaming quality issues on customers.
The company later released a video apology.

Casey, a former Starbucks Corp executive, and
Costin, president of a Boston-based private equity company, have
been members of Lululemon's board since 2007.

RAPID GROWTH

Best known for popularizing form-fitting yoga pants,
Lululemon has grown rapidly in recent years. It had 254 stores
in North America and Australia as of early February, up from 137
stores in early 2011. It also has smaller showrooms testing
markets in Europe and Asia, and recently opened its first store
in London.

Affluent, active women were the company's first target
market, but it now sells men's clothing and running gear, and is
experimenting with casual streetwear and apparel for other
sports.

The company's manifesto advises readers to "dance, sing,
floss and travel," and also "visualize your eventual demise,"
because "it can have an amazing effect on how you live in the
moment".

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